‘Federation of Hotels and Restaurants Association of India’ filed a writ before the Delhi High Court challenging the constitutional validity provision whereby, service tax is levied on supply of food items by restaurants having AC facility. It also challenged constitutional validity of provision, whereby service tax is levied on short-term accommodation by hotels.
The Delhi High held as under:
I. It upheld the constitutional validity of service tax levy on foods items served in AC restaurants and made following observations:
- Rule 2C of the Service Tax (Determination of Value) Rules, 2006 enables the assessing authority to put a definite value to the service portion of the composite contract of supply of goods and services in an air-conditioned restaurant.
- Correspondingly there is an abatement for that portion which pertains to the supply of goods in the form of food and drink which would be amenable to sales tax or value added tax.
- It is to be kept in mind that the ready reckoner formula is useful where an assessee does not maintain accounts in a manner that will enable the assessing authority to clearly discern the value of the service portion of the composite contract. With the machinery provision for the levy and determination of service tax on the service portion clearly being spelt out in the Rules themselves, the legal requisites stand satisfied.